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FOR IMMEDIATE RELEASE
OLDWICK - APRIL 08, 2015 10:30 AM (EDT)
A.M. Best has removed from under review with developing implications and affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of "a-" of John Deere Insurance Company (JDIC) (Johnston, IA). The outlook assigned to both ratings is stable.
The ratings reflect JDIC's niche market expertise as well as the explicit support by Farmers Mutual Hail Insurance Company of Iowa (FMHIC) (West Des Moines, IA). The explicit support from FMHIC reflects the 100% quota share reinsurance agreement that assumes all of JDIC's post-Federal Crop Insurance Corp. premiums, as well as existing and future insurance liabilities. The quota share was entered into at the close of the March 31, 2015 transaction wherein FMHIC purchased JDIC from Deere & Company. The transaction included all of the licenses and renewal rights to business previously written by the JDIC. The group is well-positioned to meet the various insurance needs of farmers. The combined organizations are expected to benefit from the expanded geographic footprint and product (i.e. corn, wheat) diversification. This acquisition complements FMHIC's revised underwriting strategy, which is expected to reduce the volatility of results experienced in recent years. The stable outlook reflects the 100% quota share agreement with FMHIC and the expected capital support FMHIC will provide on a current and projected basis.
Somewhat offsetting these positive rating factors are the poor operating performances recorded at both FMHIC and JDIC in recent years. JDIC began writing the bulk of its business in 2011. While heavy startup expenses led to weak results that year, the expense ratio has remained high relative to industry peers. The company's results were negatively impacted in 2014 and 2013 by a drop in commodity prices, while 2012 included the worst drought conditions in 25 years. Results have also been impacted by hail-related losses. As such, underwriting results are subject to volatility from both weather and commodity price swings; factors that are difficult to mitigate. The rating and/or outlooks could be negatively impacted should consolidated operating results not meet projections.
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best's Ratings & Criteria Center.
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